For much of shopping history, if you couldn’t afford to buy something luxurious, but wanted it, your strategy usually went like this: Buy it on credit and pay it off until you own it. Or buy it on credit, never get caught up on the interest and die certain that your future impoverished descendants will visit your grave — and spit on it.
Today, there’s a new plan. Instead of purchasing an entire mansion or Ferrari, many people are buying just a piece of it, to save on overall cost and reduce ownership hassle. But there are drawbacks to sharing.
What’s often called fractional ownership, or sometimes asset-sharing, is a term that’s been around since at least the beginning of the 20th century, and a concept that’s endured longer than that, but it was usually associated with real estate and ranches. Later time share homes popularized the concept, and in recent decades, private jets.
But as the 21st century evolves, so has the concept of fractional ownership. The wealthy and upper-middle class are still fractional owners of private jets and vacation homes, but also cars, yachts, designer handbags, jewelry — and even fine art.
Whether this is a good idea is up to the buyer and, as with any sale of an expensive item, there are pros and cons.
Pros and cons of fractional ownership
Why fractional ownership?
Why not fractional ownership?
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You know you’ll only use your luxury item sporadically.
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The fractional ownership company will take care of maintenance and storage costs.
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When the fractional ownership company decides to sell an item you co-own, you will receive a share of the profits, if there are any, and then you can continue fractionally owning your replacement.
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You are sharing. Even if you feel that the scheduling of your co-property is completely fair, you can’t suddenly decide you want to use it and expect that it will be available.
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Not all fractional ownership companies are equal. If you don’t do your homework, you could be stuck with one that goes bankrupt and inherit and share with your co-owners the complicated problems you wanted to avoid.
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If the company is new and untested, you might find that the maintenance or scheduling does not go as smoothly as you had hoped.
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You have to bow to the rules of a fractional ownership company. For instance, if you co-own a Porsche, you may not be able to drive it across the country, but just in neighboring states.
Not surprisingly, George Kiebala is in the pro camp. He owns Curvy Road, a Chicago-based company that sells fractional ownerships of exotic cars.
“The level of owning a Lamborghini is pretty high,” says Kiebala. “If you’ve got the money, and you want to have your car sitting in your condo’s garage in Belize, it still needs to be stored a certain way. It needs to be driven frequently or various things will go bad, and the car can become inoperable, and suddenly you have a giant quarter of a million dollar piece of metal in a garage that doesn’t run. And people would think you were nuts.”
Now consider owning a Lamborghini the fractional ownership way.
“Curvy Road becomes like their garage,” says Kiebala, who also has offices and autos in Los Angeles, New York City and Miami. “You haven’t been paying for the car to be stored. You’re only paying for the usage for that moment, when you have the car, and when the car is brought to you with the gas tank filled up, the car’s been washed, cleaned, and it’s gone through a 50-point inspection and you’re ready to rock.”
Robert Shemin, author of the upcoming book, “How Come that Idiot’s Rich and I’m Not?” thinks fractional ownership is an idea that’s time has come. “I tell people that ownership and renting — it’s purely psychological. People love to own things for peace of mind, and there are certain assets that are a good investment. But if you’re going to use something like an exotic car 5 percent of the year, why not pay for only 5 percent of it?”
Not that there aren’t skeptics. Matthew Tuttle, a Certified Financial Planner, president of Tuttle Wealth Management LLC in Stamford, Conn., and author of “Financial Secrets of My Wealthy Grandparents,” says that he worries — even if a fractional ownership company is spearheading everything — about the baggage a co-owner may carry. If a fractional owner sinks a yacht or collides into another boat, the fractional ownership company’s insurance would cover that, but what if it was your co-owner’s fault, and he’s sued? Could you be sued?
“I’m always telling my clients to protect themselves from lawsuits, divorces and untimely deaths, and set up your affairs so any of those things happening to you wouldn’t be devastating to you and your family, and that’s why this kind of goes against that a little bit,” Tuttle says.
Tuttle says he wouldn’t rule out fractional ownership, but cautions prospective buyers to look at the purchase from every angle. And every item is different. There is less hassle with co-owning a luxury purse than an RV, for example, so it helps to have a sense of what is available, what’s right for you and your price range.
Luxury handbags. You can fractionally own, or rent, depending on how you look at it, a designer handbag from Web sites, such as Bag Borrow or Steal or Canada’s Shoulder Candy. The idea is simple. Instead of spending hundreds or thousands of dollars on one designer handbag, the shopper spends anywhere from $20 to $75 per month to choose from a selection of bags. Fine art. Adore Andrew Wyeth? Pine for Pablo Picasso? If you want to cut back on buying artwork that can cost thousands of dollars, and get a tax break to boot, you could fractionally own it with a museum. Many patrons, instead of donating their art after death, are co-owning it while they’re alive, with the painting in the museum for half the year and in their house the other half, or letting a gallery have part of a collection instead of all of it. Smaller museums that wouldn’t be able to afford the painting can benefit, and donating valuable art for part of the year can provide the individual some serious tax breaks. See the Bankrate feature, “Leaving a legacy, large and small,” to learn more about donating art to museums.
Yachts. You could buy a $2.38 million yacht, or fractionally own one from SeaNet, based in Newport Beach, Calif., and pay $397,000. You get to use it from 54 days to 108 days a year, depending on whether you own one-sixth of the boat, or one-third.
Vineyards. In Napa Valley, at the Calistoga Ranch, if you have an extra $400,000 or more, you can own the right to come and go as you please at the various lodges, as long as you call ahead. The idea is that you have this vacation home, without the hassle of maintenance and with various perks, like a place to store your wine. You can go on a balloon ride at a moment’s notice, or have your private chef come to your lodge. It’s expensive, to be sure, but cheaper than hiring a private chef to stay in your vacation home year around and hiring a spa staff and maintaining all of the other luxuries the spa provides.
The best companies strive to give the fractional owners an experience like no other, because that’s what people are paying for.
“The main thing I like about fractional ownership is that there are no management headaches,” says Shemin. “For me not to have to fix the car, or worry about keeping it clean, that, to me, is worth a lot of money. It’s really not about the money, it’s about the time. Owning stuff 100 percent is great, but it’s a hassle.”
Shemin says he recently took a look for himself at a company that offers fractional ownership for mansions and yachts. One reason, he says, is because of the opportunity cost. “Yeah, I can spend $1 million and buy a house or yacht, but then the money is tied up. With fractional ownership, you spend less, and you can use that extra money to invest. A lot of people don’t think about that.”
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